Mining production in South Africa surprised on the upside and rebounded in April in spite of intensified power cuts, but the ongoing structural challenges are expected to hamper higher levels of output.
Data from Statistics South Africa (StatsSA) showed that mining production in April rose by 2.3% year-on-year in April 2023, following a downwardly revised 2.2% slump in March.
This rebound in production marked the first month of growth in mining activity after 14 consecutive months of decline.
StatsSA said five of the 12 mining divisions underpinned the 2.3% annual growth in April, with the largest positive contributions coming from gold and coal.
StatsSA’s principal survey statistician Juan-Pierre Terblanche said output also increased for copper, building materials, and nickel.
“After 14 consecutive months of year-on-year decline, mining production turned positive in April, increasing by 2.3%. Gold and coal were the main drivers of year-on-year growth, with gold production rising by 27.4% and coal increasing by 12.5%,” Terblanche said.
“The industry also produced more copper and nickel. (However) year-on-year decreases were recorded for iron ore, chromium ore, manganese ore, platinum group metals, and diamonds.”
The growth rebound in mining output marks a better start to the second quarter of 2023 after output turned positive in the first quarter and rose by 0.9% led by platinum group metals and gold.
Investec economist Lara Hodes said the energy intensive mining sector continued to deal with electricity supply challenges, hindering operational performance, while logistical constraints remain significant.
“However, there has been some progress. Specifically, on the energy reform front with the establishment of the National Electricity Crisis Committee and the government implementing significant reforms to enable greater private sector investment in electricity generation, according to the Minerals Council South Africa,” Hodes said.
“Moreover, in terms of reforms in the rail industry the Minerals Council SA noted that they have been working closely with Transnet to stabilise rail operations. The announcement by President (Cyril) Ramaphosa on the establishment of the National Logistics Crisis Committee to address the rail and ports crisis is encouraging.
“Addressing both the crime and corruption challenges the sector is facing” and the red-tape issues holding back investment in exploration and mining “are also key.”
On a seasonally adjusted monthly basis, mining production eased to 1.8% in April after an upwardly revised 6.9% rise in March.
Notwithstanding the annual growth rebound in April, mining output is still down by 2.4% year-on-year, in the year-to-date (January to April).
However, this reflects significant improvement from the 7.2% year-on-year contraction recorded over the corresponding period last year.
FNB senior economist Thanda Sithole said despite intense load shedding in April, the monthly increase in output reflected resilience in the sector and, if sustained, could imply increasingly less reliance on the Eskom electricity grid.
Nevertheless, Sithole said logistics challenges and slowing external demand remained a near-term constraint on mining output.
“We expect a relatively shallow contraction of 3.2% this year from a 7.3% annual contraction in 2022. The envisaged weakness in mining output underscores the constraining impact of hard power shortages, logistics challenges, and moderating external demand,” Sithole said.
“A recovery is envisaged beyond 2023 as additional generation capacity reduces load shedding and the external environment becomes favourable.”
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